If there is a discrepancy between any printed version and the electronic version
of this document, the electronic version will be considered offical.
DATE:
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March 9, 2001
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TO:
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Senior Financial Officers/Senior Full-Time Financial Officers
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SUBJECT:
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Policy on Transfer Payments - Implementation Issues and
Clarification
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This Information Bulletin has been issued in response to requests from
departments for clarification of a number of requirements found in the revised
Policy on Transfer Payments. Changes that have been made in this bulletin will
be formalized in the Policy and the clarification of issues will be documented
in the forthcoming Guide on Transfer Payments.
- Requirements for Contribution Agreement - Appendix C
Issue: Do the requirements listed in Appendix C need to be
included in all contribution agreements?
Clause 8.2.1 of the policy states that "Contribution agreements are to
be agreed to by the department and the recipient, taking into account
the provisions of Appendix C".
Departments are encouraged to incorporate the terms and conditions of
Appendix C in their contribution agreements. However, unless otherwise
directed in TB policy, Departments have the option of including the terms and
conditions associated with Appendix C in contribution agreements. In the event
that a department does not include one or more of these requirements, a
rationale must be justified and fully documented on program files.
- Level of Funding Changed by Parliament - Clause 7.3.6
Issue: A number of departments have experienced resistance
from potential recipients when attempting to include the following condition
in a transfer payment agreement:
"provisions for cancellation or reduction of transfer payments in the
event that departmental funding levels are changed by Parliament"
Although Clause 7.3.6 states that "Terms and conditions, program
literature and agreements must include provisions for cancellation or
reduction of transfer payments in the event that departmental funding levels
are changed by Parliament", Section 40 of the Financial Administration
Act states that it is a term of every contract that payment is subject to
there being an appropriation (i.e. an appropriation must exist for the
particular payment). Therefore, in effect, every agreement or contract
implicitly includes such a clause.
However, for greater certainty and disclosure, departments must include the
"level of funding changed by Parliament" clause in all transfer
payment agreements. In instances where a recipient has a particular problem
with its inclusion, departmental officials must decide whether or not the
opposition is justified and the exclusion of the condition is warranted. In
order to exclude this requirement, an exemption from TB is required.
It should be noted that this policy requirement also appears in error as a
procedural requirement in Appendix C. For greater clarity, it is a mandatory,
not an optional, requirement.
- Declaration of Amounts Owing - Appendix C (1) (xvii)
Issue: Departments are not clear on the rationale for this
requirement.
The Policy directs that contribution agreements should include a clause
that requires recipients to declare amounts owing to the
federal government and to recognize that amounts due to the
recipient may be subject to set-off *. "Amounts owing" and
"amounts due" refer to debts that are overdue and not to debts in
good standing.
The rationale for this requirement is based on the premise that debts owing
to the Crown ought to be settled before transfer payments (which usually
represents discretionary funds) are authorized and disbursed to potential
recipients.
Nevertheless, departmental officials can use their discretion in choosing
an appropriate course of action. These are the mostly probable outcomes:
- The applicant is not requested to declare any amount owing to the Crown.
In this scenario, a department would conclude that the greater public good
would be served by authorizing a transfer payment despite an applicant's
potential indebtedness to the Crown. In addition, program officials would be
of the opinion that set-off of a transfer payment would jeopardize the
project. Therefore, it would be expected that set-off would not be approved
by the responsible Minister.
- The applicant is informed that if the transfer payment(s) is authorized,
the amount owing may be set-off. In this case, the applicant is deemed to be
worthy of support even with a debt outstanding to the Crown. But unlike the
former scenario, the responsible Minister would approve set-off of the
transfer payment if requested by another department. It is assumed in this
case that the project or initiative would not be put into jeopardy if the
debt were set-off.
- The applicant is informed that the debt has to be settled before an
application can be approved. In this scenario, the department cannot justify
providing assistance until the debt is settled.
Process:
- Where applicants are not asked for a declaration of amounts owing and/or
the program has been deemed by the responsible Minister not to be subject
to set-off, the department must thoroughly justify the decision and
document it on the program file.
- To arrive at one of the other two decisions (options B or C), the
department should follow the process below:
2.1 Determine that the transfer payment program is eligible for set-off
(i.e. responsible Minister would likely approve set-off);
2.2. Request applicants to declare all debts that are in arrears to the
government, the nature of the debt and the name of the department(s) to
which it is owed;
2.3. Request applicants for permission to share this information with the
department(s) in question;
2.4 Inform applicants of the consequences of failure to provide the
requested information (e.g. the application will be denied);
2.5. Inform applicants of the potential consequences if a debt is
outstanding (i.e. transfer payments may be set-off and/or the application
may be denied);
2.6. Inform applicants that the provision of misleading or incorrect
information after a contribution has been authorized is an act of default
that will lead to the recovery of the transfer payment.
Note: If the applicant is an individual, all requests by the
department for personal information must comply with the Privacy Act and TB
policies on Privacy.
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*Set-off is the act of taking a government refund or
payment due to a person or corporation and applying the payment against
a debt due to the Crown by that same person or corporation. A set-off
can occur intra-departmentally as well as inter-departmentally. |
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- Exemptions to Cash Management - "Holdback" Requirement
for Contributions - Clauses 7.6.3 and 7.6.4
Issue: Can an advance payment be made for the full amount
of a contribution when the value of the contribution is small?
A key attribute of a contribution is that, normally, payment is in the form
of a reimbursement of prescribed costs (i.e. only eligible expenditures agreed
to are reimbursed). Since advances should be given on an exceptional basis, a
holdback provision will:
- minimize the risk associated with the recipient not using the money for
the purpose contributed; and
- act as an incentive for the recipient to fully account for all
expenditures incurred, resulting in a reduction in departmental workload.
If officials managing transfer payment programs feel that an exemption to
the hold-back provision is warranted, they must seek a special exemption
within their transfer payment program terms and conditions at the time they
seek approval or renewal of them from Treasury Board.
- Sources of Funds - Clause 7.13 and Appendix C (1) (vi)
Issue: There is an inconsistency between sub-section
7.13.1 and Appendix C (1) (vi) with respect to the declaration of sources of
funding. This inconsistency will eventually be corrected in the Policy.
Clause 7.13.1 indicates that all sources of funding should be declared
prior to approving a contribution in excess of $100,000 or providing a grant
in excess of $100,000. However, Appendix C (1) (vi) states that for
contributions in excess of $100,000, the declaration may be made before or
shortly after the commencement of the agreement, as well as upon completion
of the project.
Instances where the declaration is made shortly after the commencement of
the project should be rare and on an exceptional
basis. Normally, these unusual circumstances would apply where it is
critical to the achievement of program objectives. The rationale must be
justified and fully documented in program files.
Note: When the declaration is to be made "shortly
after", program officials should be prudent in drafting the agreement
so that the department is not required to disburse funds before all sources
of funds have been declared and verified.
- Reports on Plans and Priorities/Departmental Performance Reports
(RPP/DPR) - Clause 7.4.7
Issue: There is some confusion concerning TBS's
expectations in relation to the DPR and RPP requirements and the transfer
payment program reporting levels.
In part, clause 7.4.7 states that "Departments must include in
the Departmental Performance Report evidence of results achieved, related to
results commitments and specific planned results in Reports on Plans and
Priorities for each transfer payment program with transfers in excess of
five million dollars".
Departments should refer to the 2001-2002 Part III - Reports on Plans and
Priorities (RPP) and the guidelines therein. Table 5.5 clarifies the
requirements of clause 7.4.7 (i.e. "by stating that additional
information on grants, contributions, and other transfers payments is
required only when the aggregate value within a business
line is in excess of $5 million"). Therefore, departments are not
expected to prepare an annual planning or results report for every (large)
transfer.
The DPR guidelines will be complementary to those of the RPP.
- Intellectual Property (IP) - Sub-section 7.10
Issue: Dealing with intellectual property matters.
Sub-section 7.10 of the Transfer Payment policy states: "Where
appropriate, the potential for sharing in intellectual property rights
should be defined in program terms and conditions".
Departments should be aware of the potential risk in the acquisition of
IP through transfer payments. It may result in the transformation of a
contribution agreement into a procurement contract or a license that may be
subject to the Government Contracts Regulations and trade agreements. For
example, licensing issues can arise in situations where departments
stipulate, in transfer agreements, that they can use the IP developed by the
recipient for their own purposes.
In order to ensure that agreements remain transfer payment
agreements, rather than becoming procurement contracts or license
agreements, departments should seek legal advice when IP is acquired or
covered in transfer agreements.
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Departmental Representation on Advisory Committees/Boards
Issue: Caution is to be exercised when departmental or
government officials participate on advisory committees or boards of
directors.
Recipients of transfer payments must remain independent of any control
exercised by government officials*. Involvement of departmental or
government officials on advisory committees or boards of directors must not
result in them exercising control, or be seen to be exercising control, in
the use of funds. Undue influence or control over advisory committees or
boards of directors may result in financial or legal liabilities on the part
of the Crown.
When participating on such advisory committees or boards of directors,
departments should contact their legal personnel when potential control
issues exist.
*Control may be exercised even in the absence of government participation
on committees and boards. Legal advice should be sought to ensure that a
partnership relationship with the recipient is not set-up, implicitly or
explicitly, in the agreement.
- Lobbying - Clause 7.5.1
Issue: To clarify the requirement to include a clause on
lobbying in a transfer payment agreement.
Clause 7.5.1 of the policy requires that Departments establish policies and
procedures to ensure that any person lobbying on behalf of an applicant be
registered pursuant to the Lobbyist Registration Act. Departments should be
familiar with the exemption provisions of this Act. Questions can be directed
to the Office of the Ethics Counsellor.
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In general, the Lobbyist Registration Act, (
http://laws.justice.gc.ca/en/L-12.4/) adopted in 1985, requires people,
who are paid by their clients to influence federal politicians or government
officials for financial benefits or legislative changes, to file a detailed
report with Industry Canada in which they disclose their lobbying activities
and clients. In addition, Appendix M of the Contracting policy, entitled
Lobbyists and Contracting, states that fees paid to a lobbyist should not be
commensurate with the amount of the grant or contribution raised. Appendix M
can be referenced at
http://www.tbs-sct.gc.ca/pubs_pol/dcgpubs/Contracting/contractingpol_m_e.asp .
Therefore, where transfer payment project activities might include
lobbyists, departments may require a certification by the recipient at the
time of application. A risk-based approach is an effective means to monitor
this requirement.
- Official Languages - Sub-section 8.6
Issue: Inconsistency between English and French wording
The wording of the English and French versions of sub-section 8.6 of the
policy, "Official Languages", has been changed for consistency.
Departments should be aware of the contents of the official languages
policy entitled "Grants and Contributions". The policy can be
accessed at: http://www.tbs-sct.gc.ca/pubs_pol/hrpubs/offlang/chap1_4_e.asp.
- Results-based Accountability and Risk based Audit Frameworks -
Clauses 8.1.1 (xv) and (xvi)
Issue: The requirements for results-based accountability
and risk-based audit frameworks have proven to be challenging for some
departments.
Further guidance on the framework requirements will be provided in the
forthcoming Guide on Transfer Payments due to be completed in the
March/April 2001 time period. Given that this has been a challenge for
departments, the draft section of the Guide applicable to the frameworks is
attached as Appendix A. Appendix B is also attached as background
information to the audit framework. Departments are reminded that these
attachments are in draft form.
- Eligibility of Crown Corporations - Clauses 7.2.2
Issue: Correction to wording
In part, paragraph 7.2.2 reads " Where a department is considering
a grant or a contribution to a Crown corporation listed in Section 85 and
Part I of Schedule III to the Financial Administration Act, it must consult
with the Treasury Board Secretariat to determine whether specific Treasury
Board approval is required".
The conjunction "and" should read "or"
as there are no corporations, mentioned in section 85 of the FAA, that are
listed in Part 1 of Schedule III.
The corrected version reads "Where a department is considering a
grant or a contribution to a Crown corporation listed in Section 85 or
Part I of Schedule III to the Financial Administration Act, it must consult
with the Treasury Board Secretariat to determine whether specific Treasury
Board approval is required.
Departments are invited to identify other implementation issues regarding
the Policy on Transfer Payments and/or submit their comments on this
Information Bulletin.
Enquiries
Enquiries can be directed to the Financial Management Policy Division,
Comptrollership Branch, TBS.
Telephone: (613) 957-7233
Facsimile: (613) 952-9613
_________________________
Rod Monette
Assistant Secretary / Assistant Comptroller General
DRAFT
Appendix "A"
Mandatory frameworks and plans
The objective of this Chapter is to clarify TB requirements for new or
renewed submissions for transfer payments programs. It is mainly aimed at
program managers in departments who develop new transfer programs or manage
existing ones and program analysts in Treasury Board who approve these programs.
The Policy on Transfer Payments stipulates that Treasury Board submissions
for program approval of terms and conditions for grants for a class or
recipients or for contributions should include a result-based management
and accountability framework and a risk-based audit framework
that cover audit and evaluation plans.
It is expected that most departments have in place some of the elements
required for the above frameworks. Unless it is the first time a department
engages in transfer payments, departmental frameworks or plans may already have
sections specifically covering existing transfer programs.
In these cases, the relevant framework should be adjusted to the new or
modified program and updated to reflect current policy requirements. If such a
framework does not exist for the program being considered, it will have to be
developed before the submission is sent to TB for approval.
Result-based management and accountability framework
The Policy on Transfer Payments requires that each Treasury Board submission
for programs or initiatives with transfer payments include a Results-based
Management and Accountability Framework (RMAF) dealing with accountability,
evaluation and reporting requirements. The framework should actually help
achieve a number of goals related to the results-based management agenda:
- To set clear roles and responsibilities for the main partners involved in
delivering the program or initiative - a sound governance structure;
- To ensure clear and logical design that ties resources to expected results
- a results-based logic model that shows a logical sequence
of resources, activities, outputs and key results for the program or
initiative;
- To have a sound performance measurement strategy that
allows managers to track progress, measure results, support subsequent
evaluation work, learn and, through this, make adjustments to improve on an
ongoing basis;
- To set out any evaluation work that is expected to be
done over the lifecycle; and
- To ensure adequate reporting on results.
If successfully developed, the framework should represent:
- an understanding between the partners on what they aim to achieve, how
they plan to work together to achieve it, and how they will measure and
report on results;
- a tool for better management, learning and accountability throughout the
lifecycle of the program or initiative; and
- an early indication that the program or initiative is set up logically -
with a strong commitment to results - and with a good chance to succeed.
The results-based management and accountability framework can be applied to
programs or initiatives involving transfer payments, whether managed within the
boundaries of a single department or involving external partnerships. It
includes:
- a clear statement of the roles and responsibilities of the main partners
involved in delivering the program or initiative;
- a clear articulation of the resources to be applied and the objectives,
activities, outputs and key results to be achieved, along with their
linkages;
- an outline of the performance measurement strategy, including costs and
performance information (key indicators) that will be tracked;
- the schedule of major evaluation work expected to be done; and
- an outline of the reporting provisions as appropriate for funding
recipients and for the department, including parliamentary reporting.
A results-based management and accountability framework should
convincingly demonstrate a department's intention and capacity to measure
performance against key results commitments on an ongoing basis (ongoing
performance measurement) and periodically through program evaluation. A sound
performance measurement strategy should cover:
- Main activities of the program (what will be done?)
- Clients or target populations (who will benefit?)
- Expected results (what will be achieved?)
- Performance indicators (how will we objectively know?)
- Data sources (where will we get the information?)
- Methodological considerations (how will we measure and analyse, and at
what costs?)
Additional information and guidance on the development of results-based
management and accountability frameworks will be available shortly through
a separate TBS guide produced specifically for that purpose.
Risk-based audit framework and internal audit plan
The content of an audit plan depends on many factors such as management
requests, legal obligations, pre-established cycles, needs and expectations of
Central Agencies or other partners. But in order to utilise internal audit
resources where they are the most needed, risk should be a driving force in the
making of the plan. A risk-based audit framework is an effective way of
achieving this objective. A risk-based audit framework is a coherent and
disciplined approach to detect, assess and deal with risk.
With regard to transfer programs, the auditors will consider the procedures
and controls in place to identify and assess risks. They must decide on an audit
strategy for this program that will be reflected in the annual audit plan, or in
a stand-alone document, if the new or renewed program has been developed after
the publication of the annual audit plan. Risk management is discussed in
Chapter 7.
It must be remembered that the main role of the audit function is to provide
assurance on the proper management and administration of the programs. This
applies to both conditional and unconditional transfer programs, new or renewed.
It is the role of program management to conduct the audit of recipients in
accordance with section 8.5 of the Policy on Transfer Payments.
Under certain circumstances, internal audit can look at individual
contribution agreements. This generally occurs at the request of program
management when a problem is suspected and the program internal controls, such
as financial and operational monitoring have failed or when available program
officers lack the capacity or expertise to handle the issue or they themselves
may be part of the problem.
Therefore, the internal audit plan included in a TB submission should mainly
address how and when internal audit will determine whether or not the transfer
program is adequately managed and administered. It may also indicate when and
how it will audit individual contribution agreements if it is deemed necessary
to supplement or assess the effectiveness of program monitoring.
Internal audit of transfer programs and agreements is covered in chapter 9.
It is important to note that internal audit of agreements does not
relieve programs managers of their responsibilities towards the effective
monitoring of the contribution agreements under their responsibility.
DRAFT
Appendix "B"
Due diligence in the management and administration of transfer
programs
The Transfer payment policy states that submissions for program approval of
terms and conditions for grants to a class of recipients or for contributions
should include "assurance that the departmental systems,
procedures and resources for ensuring due diligence in approving transfer
payments and verifying eligibility and entitlement and for the management and
administration of the program are in place".
This paragraph stresses the fact that due diligence in the management and
administration of a transfer program is just as important as obtaining the
expected results.
Due diligence in the management and administration of a transfer program is
supported by having the proper systems, procedures, resources and controls in
place. These elements are often integrated into a management and control
framework.
Whether in a framework or developed separately, transfer programs should have
in place the systems, procedures, resources and controls to ensure or promote:
- compliance to applicable legislation, policies and procedures;
- efficiency, effectiveness and economy in the use of resources;
- financial integrity.
More specifically, the transfer program should be designed to include
following components.
- A clear identification of essential legislation and policies that must be
complied with, of procedures that should be followed, of the level of
quality, of the level of operational efficiency and economy that is required
in the administration of the transfer program and of the expected
effectiveness in its delivery;
- A set of operational indicators covering the above, as described below;
- Internal controls to support the achievement of administrative objectives
in terms of compliance and quality, operational objectives in terms of
efficiency and economy, and program objectives in terms of effectiveness;
- A reporting process that provides program managers with timely, reliable
and complete information on the above.
Operational indicators
Compliance indicators provide information as to whether mandatory legislative
and procedural requirements are complied with. Quality indicators reflect the
degree to which operational and administrative quality standards are met.
Efficiency indicators measure the ratio between the value of an operational
output and the cost of the resources used to produce it while economy indicators
indicate whether the most economical solution was chosen, when available and
appropriate.
Effectiveness indicators tell whether or not a given process produces the
expected operational output.
Examples of indicators:
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Compliance: Claims for reimbursement are approved by
an authorised officer
Quality: Rational for project approval is well
documented
Performance (effectiveness): Significant agreement
problems are detected during monitoring visits
Performance (efficiency): Unnecessary administrative
steps have all been removed
Performance (economy): Conference
calls are used by program officers whenever possible to avoid costly
travel costs
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